Customer acquisition cost (CAC)
Also known as: CAC, cost per acquisition of a customer
Customer acquisition cost (CAC) is the total sales and marketing spend for a period divided by the number of new paying customers won in that period.
CAC = sales and marketing spend / new paying customersCAC answers one question: how much the company pays to win one customer who actually pays. Leads, sign-ups and trials do not count. That is what separates it from cost per lead and from the cost per action an ad platform reports.
Example
A B2B service spends $30,000 in a quarter on ads, $18,000 on two marketers’ salaries and $2,000 on tools. It closes 40 new clients in the same quarter.
Paid CAC, ads only: $30,000 / 40 = $750. Fully loaded CAC: ($30,000 + $18,000 + $2,000) / 40 = $1,250.
Both numbers are correct; they answer different questions. Paid CAC compares channels. Fully loaded CAC tells the finance lead what growth really costs. The figures are illustrative, chosen to show the arithmetic.
How to use it
Pick one definition, write it down and keep it for a year: which costs are in, and what counts as a new customer. Then calculate CAC per channel as well as blended. A blended CAC of $1,250 can hide a referral channel at $300 and a paid social channel at $2,400.
CAC on its own does not say whether a customer is worth buying. Read it next to customer lifetime value and the CAC payback period.
Common mistakes
- Counting leads or trials as customers. CAC drops on paper while nothing changes in revenue.
- Leaving out salaries, agency fees and tools, then comparing that number with a competitor’s fully loaded CAC.
- Matching spend and customers from different months when the sales cycle is long. With a 60-day cycle, January spend wins March customers.
- Mixing new and returning customers in the denominator, which makes paid channels look cheaper than they are.